Towers Watson has released a new Funding Illustrator App for an iPad to help trustees and sponsors of defined benefit (DB) pension schemes understand the factors that affect the size of their deficit, when they can expect the scheme to be fully funded, and the contributions that may be required.
Funding Illustrator enables DB sponsors and trustees to consider and engage with the possible outcomes from actuarial valuations much earlier in the valuation process.
Adam Boyes, a senior consultant at Towers Watson, said: “Giving sponsors and trustees the ability to perform actuarial calculations on their own iPad will help them get a deeper understanding of how sensitive valuation results are to key assumptions and of how much prudence they are building in. This can help illustrate the risks inherent in funding DB schemes – including the consequences of investment returns falling short of expectations or of members living longer than anticipated.”
Towers Watson expects that valuations based on funding positions in early 2013 will typically show significant deficits and lead to challenging negotiations between employers and trustees. This makes early engagement from both parties more important when it comes to scrutinising assumptions and considering possible solutions.
Adam Boyes said: “Through this app, sponsors and trustees will be able to estimate the level of contributions that would be required to address the deficit and the effect that using the flexibilities in the current scheme funding regime would have, such as extensions to recovery periods and making advance allowance for investment outperformance. This will be valuable at all stages of the valuation process from providing early indications of possible results soon after the valuation date, through to facilitating final-stage negotiations between trustees and sponsors with results being modelled ‘live’ in the meeting.”
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